FTC's in-app purchasing cases ignored consumer benefits, critics say

The U.S. Federal Trade Commission failed to adequately consider the consumer benefits of easy in-app purchases in its recent complaints accusing Apple and Amazon.com of allowing children to buy digital products without parental permission, according to some critics of the agency.

In both cases, a small number of customers were affected by a legitimate business decision to allow for convenient in-app purchases, critics said at a Thursday discussion about the FTC's consumer protection priorities sponsored by free-market think tank TechFreedom. Apple in January agreed to pay at least US$32.5 million to customers in a settlement with the FTC, while the agency's case against Amazon, filed in early July, remains open.

Thursday's panel discussion follows criticism that the FTC has acted outside of its congressional authority in some recent cases, particularly when bringing two recent data security complaints against companies.

The Apple case involved a "minuscule" percentage of the company's customers, when most people valued the convenience of the company's decision to allow in-app purchases through its app store to continue for a 15-minute window without logging back in, said Joshua Wright, an FTC commissioner who dissented in the agency's settlement with Apple.

Apple's business decision to leave an app purchasing window open for 15 minutes produced "obvious and intuitive consumer benefits," Wright added.

The FTC needs to weigh the potential consumer benefits of legitimate business decisions before bringing complaints about unfair business practices against companies, Wright said. He called for the commission to conduct more "rigorous" cost-benefit analysis before bringing consumer protection cases.

In the Apple case, the FTC instead "simply substituted its own judgment for a private firm's decision as to how to design a product to satisfy as many users as possible, knowing some harm would come to a small group of consumers," Wright said.

Wright didn't comment on the FTC's Amazon complaint because it is still an open case, but other speakers made similar points about the Amazon case.

Amazon has offered a service, called Kindle Free Time, that blocks children's in-app purchases, since late 2012, but the FTC still brought a complaint against the company, said Geoffrey Manne, executive director of the International Center for Law and Economics, a free-market think tank.

Free Time seems to be a better service than the requirements in the Apple settlement, Manne said. "It seems very much like the FTC has a kind of myopic vision of what's appropriate for dealing with this particular in-app purchasing problem, and Kindle Free Time isn't it," he said.

The FTC, in the Apple and Amazon cases, has too aggressively used its authority to police unfair business practices, when all businesses are subject to customer complaints, added James Cooper, a former deputy director in the agency's Office of Policy Planning.

"Is zero consumer complaint where the market needs to go?" Cooper said. "Amazon has this policy, Apple has this policy, and some consumers don't like it, and the FTC thinks we should be down at a zero complaint rate."

Other speakers defended the FTC, saying the agency does weigh the consumer benefits of business practices before bringing complaints. The agency's Bureau of Economics issues independent reports on possible commission actions before the FTC acts, said Martin Gaynor, the bureau's director.

The FTC has worked to protect consumers when there are "a lot of chronic problems in the digital marketplace," added David Balto, a former deputy assistant director in the FTC Office of Policy and Evaluation.

In the Amazon case, if the FTC hadn't filed a complaint, "would there be bad practices that continue?" Balto added. "That would trouble me as a consumer advocate."

Grant Gross covers technology and telecom policy in the U.S. government for The IDG News Service. Follow Grant on Twitter at GrantGross. Grant's email address is grant_gross@idg.com.

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